By Nigel Hodges of Currency Solutions

The thunder and lightning we experienced across the capital this week comes in pretty sharp contrast to the latest pictures from Beijing.

At least, I assume it's Beijing, it's difficult to tell behind all the smog. With Team GB standing a decent chance of returning home with some medals, I'd be excited about the Olympics if I thought there was a chance of any of the events actually being visible.

While the rest of the world turned their gaze to China, Monday's data releases were centred on the US. Income and expenditure figures were positive and so was the market as far as the US Dollar is concerned.

The data showed increased growth in personal income and personal spending, which came contrary to the expectations of most analysts. The Federal Reserve uses these figures as a primary indicator of inflationary pressures and they may have had some bearing on the Fed's decision to leave interest rates unchanged.

The Fed did, however, make their concerns about inflation crystal clear. "Some indicators of inflation expectations have been elevated," the statement read, "The committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain."

The announcement meant that the US Dollar hit its strongest level against the Pound and the Euro since the middle of June.

With Sterling showing no signs of improvement and the US gathering strength, the US Dollar is heading towards a $1.94 level against the Pound.

There is a support line at $1.94 that hasn't been broken since December 2006. Buyers of US Dollars may wish to act early to avoid disappointment.

The positive news from across the Atlantic wasn't exactly matched by the releases from the UK.

Put bluntly, sterling continues to take a kicking. Poor banking data from Royal Bank of Scotland and HSBC, coupled with continued political in-fighting did little to enamour the Pound to overseas investors.

The Pound began Tuesday lower against almost every other currency. Earlier today, Halifax announced that house prices have fallen 11 percent in the last year - the biggest fall since 1983.

Of course, the big news from the UK was the Bank of England's interest rate decision. Despite a seemingly never-ending string of gloomy data, they opted to hold interest rates for a fourth consecutive month. The decision, while widely expected, came after what analysts have described as the monetary policy committee's toughest ever meeting.

While German factory orders showed 0.4 percent growth in June, The European Central Bank, like the Bank of England, are trapped by rising food and commodity based inflation whilst economic growth is sliding.

It came as little surprise that the ECB chose to leave lending rates at 4.25 percent after their rare August meeting. In light of the news, the Euro is now trading at its lowest level against the US Dollar since March. The Pound and the Euro are currently caught in a range between €1.2560 and €1.2750, but that range is narrowing. A push down towards €1.25 in the near future seems likely.

The Czech Republic's Central Bank also met this week, but unlike their contemporaries at the ECB and BoE, they cut their rate by a quarter of a percent. It was the first interest rate cut for over three years and the Koruna fell against both the Euro and the US Dollar immediately, by 0.9 and 1.2 percent respectively.

As we said last time, the only thing keeping the Pound as sturdy as it is is that the continuing pattern of negativity towards the Pound is being matched by the negativity towards countries that rely on commodity exports and those where high interest rates once attracted impressive investment flows.

Overnight on Monday, news broke that Australian interest rates have remained on hold. This did something to calm the nervousness that had been building around the Aussie Dollar.

The inaction had been anticipated, but the accompanying comments from the Reserve Bank of Australia did point to lower interest rates in the near future.

The Aussie Dollar weakened on the news and offered buyers of the Aussie Dollar the best opportunity since May on Tuesday morning.

In fact, the Australian Dollar is the weakest it has been against the Pound since April this year. While there's a slight influence by the expectation of an interest rate cut from the RBA before the autumn, the weakness in the Aussie Dollar is mainly related to the fall in commodity prices.

Once interest rate cuts are made and the prices of commodities stop sliding, we may see a return to the Pound weakening against the Australian Dollar.

As proof of this, we found out overnight on Wednesday that Australian employment rose by 10,900 in July. The Aussie Dollar bounced back in response to the news, with the GBP-AUD rate dropping a full cent.

Sadly for Australia-bound migrants, there's a chance this pair will reach A$2.06 soon.

As we mentioned last time, there was a big spike in the GBP-NZD rate last week. However, with New Zealand's economy slowing and the Reserve Bank of New Zealand ready to cut the cost of borrowing in New Zealand to stimulate spending and boost growth, the Pound is under pressure.

However, all the time the global economy is depressed it will be hard for New Zealand to ease away from a slowdown. Until all this plays out, the GBP-NZD is likely to maintain a generally upward trend with spikes to NZ$2.72 and troughs towards NZ$2.66.

The change in commodity prices is having an even more marked effect in Canada, with the drop in oil, gas and base metals weakening the Canadian Dollar.

The GBP-CND exchange rate has driven up to the same C$2.04 level that has capped this pair since December 2007.

In fact, with Sterling weakening against all but the commodity reliant currencies, it is quite surprising that we are anywhere near this elevated level. Canadian Dollar buyers would do well to take note.

On Wednesday, we received the Ivey index figures regarding business sentiment in Canada. At 65.5, the figures arrived a full three points above the market forecast.

In South Africa, it remains likely that interest rates will rise; investors will continue to buy into the Rand to take advantage of that yield. Most of that money is coming from Japanese risk-seekers, but even the majority of them are reining in their speculative investments and bringing their funds back home.

Having pushed all the way down to R14.15, this exchange rate has already recovered one full Rand and may well make further gains in the days ahead. With the currency as volatile as it is, those seeking Rands would do well to target R15.90 with an automated market order.

That's it for the week. I'm off to try and enjoy the Olympics. And, hey, if none of it is actually visible, well, at least there's Kevin Pietersen's captaincy debut and a new football season to enjoy.

Have a great weekend.

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